Friday, April 29, 2016

This Market is in Desperate Need of New Listings!

This local market of ours is really screaming for listings. There are buyers lined up around the block and they are all in a bidding war to get a house.

While this is very good for sellers, it can lead to market problems as buyers become so discourage they just leave and go rent something.

Sellers are in the proverbial, 'catbird' seat right now and that golden sales opportunity may only last a short while. The market wants and needs fresh new inventory to help satiate the the thirst of all those buyers.

Many people associate this kind of rapid price increase as healthy for the market. It really isn't healthy, as it is not sustainable. A healthy and robust real estate market is one that grows at 4-6% annually. Double digit growth if allowed to persist for too long leads to uncomfortable negative adjustments.

That's why this market needs an influx of new listings now. Buyers are clamoring for opportunity to get into the real estate market. With inventory tight they are struggling to find homes they can buy. For quite awhile banks were holding on to their inventory to avoid having a flood of inventory crash the market. It's high time those banks start releasing a slow and steady flow of REO back into the market. Just enough to take the edge off the entry level market.

Homeowners that are currently living in a entry to mid level home that has a value less than 110% of the local median are in prime position to make a move up. The pressure on the bottom 60% of the market is intense and the step up market at 110-150% of median is much less competitive, This means a seller can sell their smaller home and get top dollar while having an opportunity to buy that dream upgrade house that does't have the same level of market pressure.

Don't get me wrong, there are buyers bidding strong on $400k homes as well, but I am not seeing the frantic crazy overbidding on the top half of the market like we all are seeing in the bottom half. Selling that $280k house today and stepping up to that $380k house is a pretty smooth deal for those in position to do it. Yet so many are choosing to stay put.

Any homeowners sitting in a 3 bedroom 2 bath 1500 square foot house wondering if it is a good time to sell. The answer is YES!

Friday, April 22, 2016

I warned about this... now it's happening.

That is a rather ominous headline. The warning to which I refer is the issue of entry level home buyers getting priced out of the market. With prices escalating at a rate of roughly 10% annually and wages rising at only a fraction of that, many buyers no longer qualify. I have had buyers hesitate sometimes against my recommendation, and now they cannot afford a home.

In the market under $300,000 it is a strong seller's market. "Seller's Market" refers to the conditions favoring sellers. Any home priced well sells quickly and often with multiple parties bidding above the listed price. From $300-$500k it is a moderate seller's market. Above $500k it is near neutral with a slight favor to sellers.

Entry level buyers need to act now before they find themselves unable to buy. These kinds of markets generally require buyers to be less picky about the home. I find many people buying their first home feel like they must get the "perfect house". That is just highly unlikely. We have an interesting market issue that is making the entry level home more competitive than in the past. Retiring baby boomers are downsizing into the same types of homes that first timers are seeking. This has put enormous pressure on the sub-median priced homes. These 'down-sizers' are often coming in with huge down payments or all cash after selling a much bigger home.

All else being equal, a seller would prefer a cash offer as there is no third party (bank) involved in the transaction. Cash sales close faster and with a higher success rate. Some buyers have just decided to sit it out. They will rent and rents are rising nearly as fast as home prices.

Here is the basic math. The oft used qualifying formulas that the debt to income ratio needs to be less than 45% (FHA) and the total monthly payment on the home including principal, interest, taxes and insurance (PITI) must be less than 33% of total income produce semi-predictable scenarios.

So a borrower(s) that earns $3,000 per month can have a house payment equal to or less than $1000 per month and no more than $1400 per month in total debt service (credit cards, car payments, house payment, etc.) How much house does $1000 a month PITI buy? About $175,000 at current rates with an FHA loan and 3.5% ($6,100) down. There are many variables in lending and this is just a typical example based on some standard underwriting guidelines. A buyer with good credit can likely rent a home at $1400 a month despite only qualifying for $1000 PITI mortgage. Landlords have more discretion in determining the ability to pay of a renter. Of of this considered, buyers need to talk to a lending professional to see exactly where they lie in the mortgage market. Some borrowers can borrow more based on a variety of other underwriting factors, some less.

Here in America's Vancouver, $175,000 doesn't buy much house. At current rates of market appreciation a $175,000 house today will cost $179,000 in just three months! Many buyers miss out on houses because they bid too low. Sometimes it is due to qualifying and that is understandable. A buyer should never bid more than they can qualify for. But sometimes they are trying to get a "deal" and in this market trying to get a deal has a 95% chance of costing the buyer more money.

So let's say you have a house at $200k and you offer $200k but someone outbids you and gets the house for 203k. Three months later a very similar house will be offered at closer to $207k. Would it have been prudent to step up three months ago? YES!

Many things can happen. Buyers could have a financial event that disqualifies them and takes them out of the market. Some say that is a blessing. I say, often it is not. One needs to rent if they cannot buy and rent is as much as a comparable mortgage in this market. Having bought a house and then having a crisis can be better than being a renter in that scenario. Why? Because a landlord can evict you long before a bank can foreclose. And short of being homeless, you have to live somewhere, living in your own house is almost always better than living in a rental when times get tough. The financial event could be unrelated to the buyer. It could be an interest rate hike that pushes the buyer out of the market. It could be bank regulatory changes. Buying now is almost always better than waiting in this kind of market.

This is often most difficult for new home buyers to grasp. For those homeowners on the fence about listing, now is a good time to list a home price at or below the median. The Clark County median home price is hovering just shy of $300,000 right now. The bottom line is this, buyers are losing buying power rapidly and sellers are losing opportunity. The future is uncertain, but the 'now' is predictable.

Friday, April 15, 2016

Pricing is Erratic on New Listings

There is an inconsistency in the market regarding new listings. Various agents are trying different 'angles' in marketing to get the best response on their listings. This situation requires buyers and their respective agents to be diligent in research before presenting an offer.

Some agents are utilizing the classic 'auction' approach with a seemingly low list price and multiple offers on day one. This can be effective but only if the house is really clean and truly move-in ready. There is always the risk of not getting the highest offer possible using this technique but for some sellers it's about a quick sale and this can be effective. These types of scenarios will often land a back up offer so the seller can bid on another property with confidence that the current property will sell.

Some agents are listing high, way high in some cases, in hopes of getting that desperate buyer that has been outbid several times and is ready with a high offer. Sellers need to be prepared for a soft appraisal and the possibility of having to reduce the price later in transaction.

Buyers need to know where the listing is in the market place before presenting their offer. The buyer's agent needs to give sound advice or the buyer may not get the house they want. If the seller is priced to create a multiple offer 'auction' environment then the buyer needs to come in strong with their offer. Some buyers have a hard time bidding a house way up above asking but that is the nature of a robust market. The buyer's agent needs to research the market and determine where the house is on the price scale.

If the house is priced up high, the buyer can use that as a means to soften the seller or get the seller to agree to concessions such as closing cost credits and such. All of these variables will determine the way the buyer needs to present their offer to get the best deal for themselves and most importantly get the house they want.

Some buyers need help with closing costs and often they puff up the offer price and ask for seller concessions. This may work but the appraiser may not bite. Sellers need to be wary of 'over-puffed' offers.

In the end, no one truly knows how the transaction will unfold. There are many variables in a real estate deal and buyers and sellers always need to be prepared to encounter some turbulence during the process. Buyers need to follow the counsel of their loan officer to a 'T'. There is no room for screw ups in the loan process and there is a good chance a back up buyer is in place should the buyer stumble.

Buyers need to realize that trying to "steal" a house in this market will almost certainly cause them to ultimately pay more for less house. I have buyers that can't seem to get the notion that they have to bid good houses up and as they wait, prices rise. We are seeing price move up at about 1/2 to 3/4 of a percent each month. That may not seem like much but on a $300,000 house a 1/2 point increase is $1500. A buyer that takes three months to buy a house will spend $5000 more than if they get aggressive now and get the house they want sooner rather than later. The market is cold and cruel and cares not about anyone's hopes, dreams, and ambitions. As prices creep up buyers lose purchasing power and sometimes are priced out of the market altogether.

Choose your agent wisely and he or she will get you the best opportunity to buy or sell a home.  

Friday, April 1, 2016

Nostradamus in the Spring

This spring has been quite robust in our local real estate market...

originally posted back April 14th, 2014 by Rod Sager

Looking back over the years I find that the early part of spring has proven to be a pretty good Nostradamus act for the real estate market. Like the famous 16th Century prognosticator, the indications are not 100% accurate and may require a little creative imagination to confirm.But in general if sales and new listings get a early spring bump the rest of the summer selling season tends to do well. Of course the market has many economic influences such as interest rates, legislation, overall economy, etc.

So my anecdotal view is that this spring is starting off quite nicely. Bare in mind that the industry experts are suggesting a more modest level of growth in values this year in contrast with 2013 which was quite robust. I am seeing well priced properties selling quickly and at very near or even over full price. Overpriced listings are not selling or are getting low offers closer to market value. We are not seeing the bid it up to the moon craziness of 2005-2007. Buyers are shrewd and seem to do a good job of sniffing out a deal when they see it or coming in soft on an overpriced listing.

This market still seems to favor the turn key move in ready homes. Light fixers or extremely dated homes take much more time to sell. Heavy fixers however, that are not financable are selling quickly as investors seek to find properties in a market with tight inventory.

All of this bodes well for the forthcoming months that are considered "prime time" for real estate. I am looking forward to helping many families find their ideal home in this solid and seemingly stable market.